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The Boston Globe

Business

State gives film subsidies rave reviews

Paramount Pictures via Associated Press

Tax credits were granted for “The Fighter,’’ filmed in Lowell with Boston native Mark Wahlberg.

Governor Deval Patrick’s administration says it remains firmly committed to the film tax credit program, even though production companies sell nearly all the credits to help corporations and wealthy individuals lower their tax bills.

Last week, the Globe reported that filmmakers have sold at least 96 percent of the tax credits they received because they did not make enough income in Massachusetts to use the tax credits themselves.

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The Department of Revenue estimates that brokers and buyers of the film credits earned $33 million between 2006 and 2010 by buying up the credits at a discount and using them to lower their state income taxes.

Critics say the state could potentially save that money by giving film makers direct grants, cutting out brokers and other firms cashing in on the program.

But Greg Bialecki, state secretary of housing and economic development, said tax credits have proven to be an effective way to attract film productions to the state. The administration is not considering any significant changes in the program, he said.

Bialecki noted that grants have their own costs, such as requiring consultants and others to help prepare the applications. He said the federal government has found tax credits useful in stimulating development in housing and other sectors.

“Nothing is perfect,’’ Bialecki said. “There really isn’t any evidence that there is a more efficient or superior model.’’

The film tax credit, launched in 2006, is one the state’s most controversial economic development initiatives. The program, in the form of tax credits, reimburses film companies up to 25 percent of the money they spend in Massachusetts to produce movies, television series, and TV commercials.

Industry executives say the program has helped attract an impressive roster of major motion pictures, such as the “The Fighter,’’ a film about boxer Micky Ward that was set in Lowell, while creating hundreds of jobs and pumping more than $300 million into the state’s economy over five years.

Critics say it’s too expensive.

The Department of Revenue recently estimated that the film subsidies each year cost more than $142,000 per job created for residents of the state. In addition, the department estimated, the productions generate only 13 cents in new tax revenue for every $1 spent. This fiscal year alone, the state estimates it will spend $80 million on the program.

“By and large, all the money is going out of state and not benefiting local residents,’’ said state Representative Carl Sciortino, a Democrat from Medford.

The revelation that some of that money went to brokers, wealthy individuals, and large corporations has intensified the criticism. The Department of Revenue will not name companies that buy the credits, citing privacy rules covering taxpayers.

But state prosecutors last month identified Walmart Stores Inc. and Bank of America Corp. as buyers in a fraud case against a Cape Cod filmmaker. Attorney General Martha Coakley’s office has accused Daniel Adams of obtaining $4.7 million in fraudulent tax credits by inflating the amount of money he spent to make the “The Golden Boys’’ and “The Lightkeepers.’’

Bank of America and Walmart later bought the credits through a broker, the state said, apparently unaware of the deception.

Bank of America and Walmart will be allowed to keep the fraudulent tax credits, according to the revenue department. The state says it won’t hold buyers liable if an accountant certifies a filmmaker’s application for tax credits, as was done in this case.

Bialecki acknowledged the film subsidies are far more expensive than most other state tax incentives. Bialecki, however, said the film subsidies are still relatively new, and he expects the cost per job to decline as the industry matures and puts down roots in the state.

“We are not discouraged by the high level of investment per job that has occurred so far,’’ he said. “We are trying to grow a new industry in Massachusetts.’’

But Bialecki said the administration has not determined what would be a reasonable amount to spend in the long run. The program may never generate enough new tax revenue to cover the costs of the subsidies, he said, but the movie business provides intangible benefits, such as promoting Massachusetts and generating tourism.

“We would ultimately be comfortable with a level of subsidy that is higher than for other jobs because of the secondary benefits,’’ Bialecki said.

A state commission is reviewing the various tax credit programs, including film incentives, and is scheduled to report its findings in April.

State Auditor Suzanne Bump, a member of the commission, said lawmakers and other state leaders were not clear about their objectives for the film program when they created it, making it hard to determine whether it has been successful.

“My opinion is that all of these tax incentives need to have clearly defined goals,’’ Bump said, “and there needs to be transparent reporting about their impact.’’

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.
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